No sooner do we get over one hill than we find another in the way
If you thought we might get a moment of peace after this central bank week, think again. Your moment of peace will be shortlived as we switch from trading central banks to trading the real start of the US election. On Monday Clinton and Trump go head to head in their first major debate that marks the proper countdown to who will be the next president of the US of A.
US election trading can be messy and there's no reason to think that this will any different. Because of the set up in US politics, there's no simple one party in, one party out, leader becomes the top boy (or girl), like in a lot of countries. There's certainly no multi-party coalitions to deal with, like we've seen in Europe.
The markets view will be who out of the two is potentially less or more damaging to the US economy or more market favourable. Obviously Trump is the more inflammatory of the two, and that's added more spice to this race than probably many others.
Monday's head to head could potentially be a big market mover as traders may judge the result as an early indication of who may become president. Whatever happens, from Monday, markets will get thrown another volatile hot potato to deal with over the latter part of the year.
Deutsche bank have also been looking the election result but from a different angle.
"Perhaps a more pertinent question is if you knew the election result today would you buy or sell the USD?
In so much as the current market talk has focused on the potential for a large fiscal stimulus whoever is the President and that this stimulus will encourage and complement monetary policy tightening, whoever is elected President is seen as a likely to be USD positive. Fears over a fiscal package that is too big or destabilizing are not high on the list, as there appears to be some belief in Congressional checks and balances. There is also some confidence that the election will break Washington's gridlock long enough to get some stimulus through in the new President's first year in office. The market is apt to trade off this one important strongly held belief, until it is confident that there are other policy initiatives to trade off. As an example, a USD negative allied to the election could relate to the attacks on free trade, where retaliation could easily constrain the Fed from tightening. The cult of personality will also be a factor. Who will be the next Treasury Secretary and will they use a weaker USD as a vehicle to support trade, as Lloyd Bentsen did in 1993 - 94? Nonetheless second order considerations like the above with all their uncertainties, are for the moment being dominated by positive USD fiscal argument"
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Monday's debate is one of three so there's plenty of time between them where we will switch back to trading everything else going on, it may just pay to be aware that trading conditions may change and be skewed around these events.
The gloves come off on Monday
